ACT OF GOD AND INSURED PERILS IN THE COVID-19 ERA


Whether viewed from the perspective of “Act of God” providing a defence at common law for non-performance of a contract, or, from the perspective of an alternative escape route from contractual liability through a force majeure clause in a commercial contract, the COVID-19 pandemic raises some interesting questions for commercial litigators. Jonathan Dale takes a look.

In the context of insurance law, dependent of course on the terms of the actual policy in question, “Act of God” can often be an exclusion to liability (travel or property damage insurance, for example) or may actually be an insured peril, or, at the least, the foundation for one (business interruption insurance, for example). Here too interesting questions are raised by the current pandemic.

The purpose of this article is to explore some of those questions and to offer the views of the author on them.

(1) What in legal terms is an “Act of God”?

Most of the cases in which the Courts have considered the meaning of “Act of God” involve non-performance of contractual obligations, or, defences to claims brought in negligence or under the rule in Rylands v Fletcher.

In more recent times an act of God has been described as follows,

“It [“Act of God”] was a metaphorical phrase (like “fate”) with a religious origin used to describe those events which involved no human agency and which it was not realistically possible for a human to guard against: an accident which the defendant can show is due to natural causes, directly and exclusively, without human intervention and could not have been prevented by any amount of foresight, pains and care reasonably to have been expected of him”.1

In broad terms, what can be distilled from the authorities then is that an act of God is an event which:

(i) involves no human agency;
(ii) is due directly and exclusively to natural causes;
(iii) could not have been prevented with any amount of foresight, plans and care and
(iv) is extraordinary in nature 2

(2) Some examples and illnesses potentially being acts of God

There is little difficulty with the Courts having found the following, by way of examples, to be acts of God:

(a) extraordinarily violent rainfall 3
(b) an unusually high tide 4
(c) an exceptionally strong wind 5

What, however, of an illness preventing performance of a contract being an act of God? Certainly, there are cases, predominantly in the realm of disputes relating to employment contracts or contracts for services, in which an illness has been found to be, or, contemplated to be, an act of God.

In Cuckson v Stones (1859)6 a brewer, employed under a 10-year employment contract, fell ill with a temporary illness some years into the contract and, although he was unable to attend personally to the business during this period, at the employer’s request he instructed the employer in the art of brewing. The employer refused to pay his wages for the period of the illness but was found liable to do so. Lord Campbell C. J. was prepared to countenance the idea that a permanent illness could be an act of God. He said 7,

“If the plaintiff, from unskilfulness, had been wholly incompetent to brew, or, by the visitation of God, he had become, from paralysis or any other bodily illness, permanently incompetent to act in the capacity of brewer for the defendant, we think that the defendant might have determined the contract. He could not be considered incompetent by illness of a temporary nature ……………..”

In Boast v Firth (1868)8 in the context of an apprenticeship contract it was held that the permanent illness of the apprentice was an act of God which excused non-performance of the contract. It is a matter of some interest when it comes to considering Covid-19 itself (below) that in the course of argument counsel for the plaintiff made the following submission (which is not in terms dealt with in the judgment),

“It is not every illness though it be permanent which can be said to be the act of God. It may have arisen from the wilful carelessness or imprudence or misconduct of the apprentice and then it would be no excuse. All the precedents define the particular act of God which causes the incapacity to perform the contract. In the New York Civil Code, p 215, s 727, the act of God is described as an “irresistible superhuman cause”. In Story on Contracts, s 752, as “inevitable accident without the intervention of man”. In Broom’s Maxims 3rd ed. 211, it is said:” The act of God signifies in legal phraseology, any inscrutable accident occurring without the intervention of man, and may, indeed, be considered to mean anything in opposition to the act of man, as storms, tempests and lightning.”

Against the background that for an act of God there has to be no human agency but only natural causes operating it seems to the author at least that this submission had a good deal of force.

(3) Covid-19 – an act of God?

For the vast majority of patients suffering symptoms of Covid-19 the statistics published by the Government daily confirm that it is a temporary illness from which, with time, a full recovery ought to be made by those patients.

The references in the cases in the previous section of this article to the permanency of the illness might be thought to militate against Covid-19 being a candidate for an act of God. It is suggested though that there is probably a “fact-sensitive” dimension to this issue. In Boast v Firth the apprentice did in fact have a permanent illness which prevented him from continuing with his apprenticeship.

In Cuckson v Stones the illness was a temporary one and the brewer was in fact able to resume his work well before the fixed term of 10 years expired. What though if the brewer in that case had contracted a temporary illness during the fixed term which put him out of action for the whole of the remainder? It is difficult to imagine in those circumstances that the Court would not have considered that a reasonable basis on which the employer could discharge the contract (which would in essence have involved a finding of act of God).

It is considered that the requirement for no human agency and the operation of natural causes only for there to be an act of God is a greater factor inducing doubt as to whether Covid-19 pandemic could properly be considered an act of God in itself.

On one level of course the spread of the virus from human to human inevitably involves human agency but it is considered that this in itself ought not to prevent Covid-19 from being considered an act of God. That would mean that a naturally occurring infectious disease in humans could never be an act of God which it is considered is unlikely in the extreme.

It is thought that more of a battleground could lie with the question of how the virus came to infect humans in the first place.

There appears to be a consensus amongst scientists that the original hosts of the virus were bats located in their natural habitat in the Yunnan province of China. However, the various emerging theories as to the initial cause of the pandemic in the human population and the related quest to find “patient zero” seem to the author to involve or contemplate acts (or omissions) which amount to human agency.

The easiest theories to deal with in this context are perhaps the conspiracy and counter-conspiracy theories which have emerged about the virus having spread following a leak from a research laboratory (whether in China, the US or any other country of the world) due to poor safety standards. On the basis of any of these theories, if in due course “proven”, it would seem a potent argument that human agency or intervention caused the pandemic which ought not, then, to be regarded as an act of God.

There is more difficulty it is suggested with the theory that the outbreak of the pandemic is associated with the Huanan Seafood market in Wuhan, China.

At its most basic if a person without any form of provocation was simply bitten by a bat, or an “intermediary” animal (civet cat, pangolin etc) hosting the disease in its natural environment then the transfer from animal to human could probably be thought of in terms of occurring naturally.

However, it is suggested that it is doubtful that the same could be said of transmission to humans from the blood, urine or faeces of such animals kept in very close quarters in wet markets, or, wildlife markets. That would seem particularly so after the outbreak of Severe Acute Respiratory Syndrome (“SARS”) in 2002 / 2003 which is generally thought also to have originated from bats as original hosts of that particular coronavirus.

In summary, looking at the various theories which are emerging as to the likely original cause of the transmission of COVID-19 from animals to humans it is considered that a potent argument could be launched against this virus and the ensuing pandemic being an act of God for legal purposes.

(4) “Act of God” in Force Majeure Clauses and causation

If the COVID-19 pandemic could cross the threshold of being classed as an act of God (as to which there must be considerable doubt – see above) there remains the question in cases, for instance, where “Act of God” is specified in a force majeure clause, whether or not the reason for non-performance, delay, or the like, in legal terms is caused by the pandemic in itself, or, the reaction of the Government to it by the imposition of lockdown measures.

Whilst it is recognised of course that hindsight should not inform what might have been intended or contemplated by the parties at the time of the making of a contract, given the large consensus to date of States in their endeavours to deal with Covid-19 by lockdown measures (Sweden currently bucking the trend) it is difficult to imagine that the Courts would be too astute to find against a party seeking to rely on a force majeure clause on the ground that Government’s responsive activities were an intervening factor such as to break the chain of causation.

(5) Current tensions over “Notifiable Disease” as an insured risk

There has been a good deal of disquiet reported in the Press on the part of business owners who are being refused insurance claims for business interruption loss; particularly, in instances in which the particular policy has a “notifiable disease” clause as an express, insured risk.

By statutory instrument as of 5th March 2020 Covid-19 became the thirty second disease to be added to the list of “notifiable diseases” by the Government. It is not without relevance that SARS appears on that same list.

These disputes will inevitably concern the particular context and wording of the insurance policy in question, but, the following views are offered.

If the particular policy defines notifiable diseases, or, incorporates by reference or otherwise, a list of diseases which were notifiable at the date of inception of the policy, to the effect that the list does not include Covid-19 then that will establish the position between the parties.

If, on the other hand, the policy is either silent as to what specifically the “notifiable diseases” are, or, defines them expressly as including “notifiable diseases which are added to the Government list of such diseases from time to time”, for example, it is considered that the insured’s position is much strengthened.

In instances in which the policy is silent as to what a notifiable disease is there are two factors which would seem to assist the insured.

Firstly, as referenced above, there is the Government’s definitive list of what a “notifiable disease” is. If insurers wished to curtail their liability to their insured to diseases which were notifiable at the inception of the policy in question it would be the simplest thing to do.

Secondly, the concept of the duty on the insured of fair presentation in the Insurance Act 2015 (“the IA”) has a bearing on this issue. Pursuant to sub-sections 3(5)(b)-(d) the insured is not bound to disclose a circumstance if:

(b) the insurer knows it,
(c) the insurer ought to know it,
(d) the insurer is presumed to know it

Perhaps unsurprisingly the “knowledge of the insurer” in section 5 of the IA is cast in wide terms. Actual knowledge is self-explanatory, but, the sub-sections concerning constructive knowledge and presumed knowledge are of particular importance in this context.

For the purposes of “constructive knowledge” sub-section 5(2) of the IA provides that an insurer ought to know something only if (a) an employee or agent of the insurer knows it, and ought reasonably to have passed on the relevant information to an individual who participates on behalf of the insurer in the decision to take the risk and, if so, on what terms, or, the information is held by the insurer and is readily available to such an individual.

For the purposes of “presumed knowledge” sub-section 5(3) of the IA provides that an insurer is presumed to know (a) the things which are common knowledge, and (b) things which an insurer offering insurance of the class in question to insureds in the field of activity in question would reasonably be expected to know in the ordinary course of business.

True it is that these sub-sections are probably almost certainly concerned with fact affecting risk, rather than risk itself, but in principle plainly a considerable point is made about an insurer’s “stock” of knowledge. It would hardly seem unfair to impose a liability on a business interruption insurer, for example, which had not limited its risk to notifiable diseases on the relevant list at the inception of the policy and yet would or ought to have known of the risk of coronavirus outbreaks not least as a result of the SARS outbreak in 2002 / 2003 which itself led to that disease being included on the list of notifiable diseases.

(6) Postscript

As with all developments in the law, or, reconsideration of the law in light of novel and unusual circumstances, there is much to debate and the views offered are only those of the author. It is very much a case of “watch this space” in this interesting commercial litigation landscape into which we are all about to emerge.

JONATHAN DALE

Notes:
1 Transco Plc v Stockport MBC [2004] 2 A.C. 1 at para 59, per Lord Hobhouse
2 Transco Plc v Stockport MBC and Nugent v Smith (1876) 1 C.P.D. 423
3 Greenock Corp v Caledonian Ry [1917] A.C.556
4 Greenwood Tileries Ltd v Clapson [1937] 1 All E.R. 765
5 Cushing v Walker & Son [1941] 2 All E.R. 693 at 695
6 (1859) 1 Ellis and Ellis 248
7 (above) at page 257
8(1868-69) L.R. 4 C.P.1

Jonathan Dale is a member of the Business & Property Department at 18 St John Street Chambers. If you have any queries about this or any other related subject, please feel free to contact us on our usual contact details and we will be delighted to assist you.